Minimum Wage Increase Could Lift All Salaries

December 20, 2006

Arguments about the impact of raising the minimum wage usually focus on small firms, with warnings that businesses like restaurants might cut back on hiring entry-level workers if they’re forced to increase pay.

But as the newly minted Democratic Congress gets ready to make a minimum wage increase one of its first legislative actions in January, large employers may find that a rising compensation tide lifts all salaries.

Under a bill written by Sen. Edward Kennedy, D-Massachusetts, the federal minimum wage would climb from the current $5.15 to $7.25 over the next two years. Even companies that pay well above the minimum may have to make increases to reflect the 41 percent jump at the bottom of the scale.

“There’s going to be upward pressure in a lot of these wages that may not be the minimum wage now,” says Marc Freedman, director of labor law policy at the U.S. Chamber of Commerce. “There are a lot more employers who may be caught up in this” than realize it at the moment.

Although one researcher says that most studies demonstrate that raising the minimum wage can lead to job losses, especially for low-skilled workers, an increase won’t impact employers that currently pay $9 or more per hour.

University of California at Irvine. “It will have hardly any effect at all.”

Democrats advocate raising the minimum wage to help address the economic anxiety that they maintain many Americans are feeling, especially women and minorities.

“Anyone who works 40 hours a week, 52 weeks a year in the richest country in the world should not live in poverty,” Kennedy said at a Capitol Hill rally shortly after the November 7 election. “It’s a civil rights issue; it’s a women’s issues; it’s a family issue; it’s a values issue.”

It’s also an organized labor issue. The AFL-CIO touts its success in generating grass-roots support for the approval of minimum wage referendums in Arizona, Colorado, Missouri, Montana, Nevada and Ohio.

The minimum wage victory “is just the beginning,” says Alicia Russell, chair of the Association of Community Organizations for Reform Now political action committee. Russell now wants to pursue indexing the minimum wage for inflation, expanding the earned income tax credit, extending paid sick days to more workers and making child care more affordable.

For the moment, the debate centers on the minimum wage. The Economic Policy Institute, a left-leaning Washington, D.C., think tank, asserts that increasing the minimum wage to $7.25 would give a raise to 14.9 million workers, most of whom are older than 20, with little economic disruption. The National Restaurant Association says that 85 percent of workers who would benefit are teenagers living with their parents.

One prominent Democrat stresses the multiplier effect of raising wages. “This is a matter of justice. This is a matter of economics,” Sen. Hillary Rodham Clinton, D-New York, said at the Capitol Hill rally. With more money in their pockets, people will become more aggressive consumers, she argues.

Freedman cautions that as businesses absorb wage increases, they may raise prices—or cut hiring and benefits. “It’s likely you would end up with a level of inflation that would erode the gains in income,” he says.

First, however, a wage increase has to wind through Congress. Democrats might score an early victory, if the bill is not heavily amended by the Senate or vetoed by President Bush.